Automatic Data Processing ’s (NASDAQ:ADP) stock dipped 2.7% as the human capital management company missed on fourth quarter revenue and earnings expectations, despite reporting strong growth. Its top line grew as a result of double digit growth in new business bookings, tempered by foreign exchange fluctuations. The company reported a 5% increase in revenues, to reach $2.7 billion, missing by $40 million. Its diluted earnings per share from continuing operations increased 15% to $0.55, compared to expectations of $0.59.

Ctrip International (NASDAQ: CTRP), the leading Chinese online travel agency (OTA), is set to release its Q2 2015 earnings on August 3rd . Ctrip reported $373 million in revenues for the first quarter of 2015, displaying a 46% year-on-year growth. The growth drivers were accommodation and transport ticketing, which together contributed to over 80% of revenues. However, due to higher spends in product development and marketing efforts, like 2014, Ctrip’s bottom line remained severely dampened in Q1 2015, as well. The net loss attributable to Ctrip’s shareholders amounted to $20 million in Q1 2015, as against a net income of $19 million in the same prior-year period. We expect the same trends of strong topline growth at the cost of bottomline erosion to persist in the second quarter as well. Currently, Ctrip is concentrating on expanding its presence in the lower tier Chinese cities. A significant reason why the company is suffering from bottomline erosion is because of the aggressive competition in China’s online travel market, which makes discounts and coupons necessary to lure customers. However, with increased investments from international OTA giants such as Priceline and Expedia, and with over 50% revenue share on China’s online travel market, we believe Ctrip’s growth path is a sustainable one for the long run. For Q2 2015, Ctrip has guided to a net revenue growth of 45-50%. We are in the process of updating our price estimate of $66 for Ctrip post the second quarter earnings results. See Our Complete Analysis For Ctrip International Strategic Developments Over The Past Few Months And Their Likely Impacts A few of the strategic developments that took place in the last couple of months that might have a significant impact on Ctrip’s Q2 2015 earnings are mentioned below: 1. Ctrip announced a $1 billion convertible debt offering in June 2015. This fund is expected to fulfill the company’s general corporate expenses and aid in the concurrent repurchase of its ADRs. The general corporate purposes might include expenses related to strategic takeovers or alliances, or expenses for product or technological development. 2. Also in June, Ctrip in collaboration with other investors, made a $1 billion offer to buy HomeInns, China’s prominent economy hotel chain. The offer is still under consideration by HomeInns. 3. In May, Ctrip bought a 40% stake in eLong, one of its chief rivals in China. Expedia sold out its 62% eLong stake to Ctrip and other Chinese investors. Ctrip’s erstwhile rivals in China included Qunar and eLong. Post the transaction, Ctrip and Expedia have entered into an alliance to share inventory in certain geographies, mainly in the air and packaged tours segment. (Read details of the deal here .) 4. Shortly after the eLong deal, Priceline increased its investment in the Ctrip by an additional $250 million. Post the deal, Priceline could gain up to a 15% stake in Ctrip. Priceline will remain Ctrip’s primary non-China hotel partner. (Read details of the deal here .) 5. However, one of the setbacks for Ctrip amidst all the gains, was the failure to takeover Qunar, one of its chief rivals in the China OTA market. In June, Qunar made an announcement that it rejected a buyout offer from Ctrip. Silver Lake, an equity investor, invested $330 million in Qunar and another undisclosed investor invested $170 million. Ctrip might have consolidated its position in China with a 40% stake in eLong and a takeover of Qunar. The collaboration of the chief rivals could reduce the competition in the Chinese online travel landscape. However, competition might not slow down too soon with the fresh rounds of investments in Qunar, which according to some, is gearing up its technological capabilities to strengthen its competitive advantage. This might not bode well for Ctrip’s bottom line growth in the near future. In its Q1 2015 earnings call, Ctrip’s management admitted that the company was aggressive in matching the coupon rates or discounts offered by its competitors. Ctrip’s GAAP operating margin in 2014 was a negative 2% due to its investments and its coupon discounts. Ctrip had projected that its coupon expenses will account for 20% of its hotel commissions in 2015. Ctrip’s Open Platform Was A Major Growth Driver In The First Quarter And Might Continue In Q2 2015 Ctrip’s open platform integrates all its partners on a single platform. This results in more competitive pricing as a vast array of products–from small hotels to wholesellers–are available to all through a common medium. Open Platform makes it more convenient for hotel partners as well as buyers to transact across a common platform with better pricing transparency. Hence, Ctrip’s network expands as a result of these increased transactions.Though the pricing transparency might lead to reduced margins in the short run, yet it helps in creating a strong brand value that will aid Ctrip in its long-term growth plan. In Q1 2015, Open Platform included 5,000 third party partners and played an important part in growing the volumes of hotels and air tickets sales through the Ctrip network. Open Platform’s hotel volume growth was thrice that of Q1 2014. We expect the growth driven by Open Platform to further increase in the second quarter given the fact Ctrip had further developed Open Platform post the first quarter. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Hewlett-Packard (NASDAQ:HPQ) has been restructuring its business in search of top line growth. However, the strategy HP adopted to increase its revenues has not delivered the desired results. Therefore, last year, the management announced that it was splitting the company into two entities. While HP Inc will focus on personal computer and printing operations business, HP Enterprise will focus on corporate hardware and IT services. Nevertheless, the company continues to launch new services and products in the market. In this note, we explore the base, bull and bear case for the company. Considering the width of the company, this is a three-part note. While the first note explores the base case valuation, the subsequent articles deal with bull and bear case respectively. See our full analysis on HP Key Driver For Our Base Case Valuation of $30.23 Imaging And Printing Division The imaging and printing division is HP’s largest division and makes up 28% of its value. The key drivers for this division are the worldwide printer market, HP’s share in printer market and Printer Ink & Toner Supplies Pricing etc. According to IDC, global demand for printers is waning and the number of units shipped has declined over the past two years. However, HP is focusing on the high-end ink market and commercial hardware rather than low-end consumer hardware. As a result, its share in the hardware market has improved from 39.7% in 2013 to 40.9% in 2014. Furthermore, with the improvement in ink technology, and rise in competition from non-Original Equipment manufacturer (OEM) price of toners and cartridges is on the decline. In the first half of 2015, HP’s newly launched LaserJet and Multifunction Printers (MFP) for the commercial segment continued to gain traction with enterprise clients. Trefis estimates that HP’s market share in the printer industry would improve to 43.3% by 2021 as it launches efficient and faster printers. Additionally, HP’s ink advantage program that targets enterprise customers has helped the company to stem the decline in printer ink & toner supplies prices. As a result, Trefis estimates that printer ink & toner supplies prices would decline at a slower rate to $45.90 by 2021. HP Services HP’s services division is the second largest division and makes up 22.7% of its value. The key drivers for this division are Technology Services, Infrastructure Outsourcing and Application & Business Services. Over the past few quarters, HP’s services have failed to deliver growth in the face of key account revenue run-off, softness in new signings from EMEA, and currency headwinds. We expect that the company will post a marginal improvement in service revenues even though weak business conditions in EMEA remain, and the company has not been able to bag substantial new contracts. The primary reason for this is that HP continues to report double-digit growth in revenues of its strategic enterprise services such as cloud, mobility, security and big data. We believe that cloud services are potentially the biggest new revenue source for HP in 2015 and beyond. Some of the services are HP Cloud Compute, HP Cloud Object Storage and HP Cloud CDN. These services are based on pay as you go pricing. Converged cloud infrastructure built on technologies like converged storage, software-defined networking and Moonshot server that power cloud computing by seamlessly integrating big data analytics and security. It continues to work closely with its channel partners to improve their cloud go-to-market and delivery capabilities. While we expect HP’s Application & business services revenues to grow to $8.3 billion by 2021, its technology services and Infrastructure outsourcing revenues to stabilize at $8.2 billion and $11.9 billion respectively. Server And Storage HP’s revenues from its industry standard server segment improved by 10% in Q1 FY2015 due to double-digit increases in ISS’s ASPs as the Gen9 ProLiant server and strength in density-optimized systems. While HP continues to lead the global server market in terms of revenues Q1 2015, it is losing market share. However, HP’s Gen9 ProLiant servers are fast gaining traction amongst users and should bolster its revenues. We expect that as the company continues to launch new servers, server shipments will improve to 3.4 million. However, according to Trefis estimates, intense competition will drive average sales price down to $3466 by 2021. HP acquired 3PAR in 2010 and the converged mid–tier storage solution from 3PAR is in high demand. In 2014, revenues from 3PAR exceeded a $1 billion run rate. We expect 3PAR converged storage solutions to drive growth in revenue at storage division in the coming years. Currently, we project storage revenues to increase to $3.7 billion by 2021. PC Hardware Revenues HP’s PC and workstation division is the fourth largest division, which contributes near 30% to its revenue and makes up 14% of its estimated value. Weak PC demand across the world continued to plague computer manufacturers as shipments declined. While we expect that the decline in the global PC market will continue to affect HP, we believe HP has taken some prudent steps such as the launch of new advanced thin clients at lower prices, to ensure that it maintains its market share. While we expect desktop and laptop prices to decline, PC shipments would improve due to pent up demand for laptops. We project that desktop shipments would stabilize at 23.7 million, while notebook shipment would grow to 41.9 million driven by enterprise demand for laptops. However, prices for desktop and laptops will decline to $354 and $438 respectively by 2021. In the next notes, we explore the bull and bear case for the company. See Our Complete Analysis For These Scenarios For HP Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Electronic Arts (NASDAQ:EA) is off to a flying start in its fiscal 2016, as the company reported $0.15 in EPS in Q1 2016, beating the market estimates by $0.12. EA’s sports title’s category, which includes FIFA 15, Madden NFL 15, NHL, and UFC ; as well as other games, such as Battlefield Hardline and The Sims 4, helped the company in engaging more gamers around the world, effectively leading to more game-play hours and better revenue growth. The company non-GAAP net revenue was $693 million for the second quarter, which was $53 million above the company’s guidance, but was 11% lower than that in Q1 2015, due to tough comparison with last year’s quarter, which witnessed an increase in sales due to gamers buying titles for their new consoles. Moreover, last year Electronic Arts launched Titanfall, FIFA World Cup 2014, and UFC, compared to this year’s Q1 quarter when there was only Battlefield Hardline. Our $54 price estimate for Electronic Arts’ stock is more than 20% below the current market price. See our complete analysis of Electronic Arts stock here At the 2015 Electronic Entertainment Expo (E3), held at the Los Angeles Convention Center in Los Angeles, California from June 16 to June 18, Electronic Arts showcased 15 new games, and got overwhelming response from the respective gamers. Games, such as Star Wars Battlefront, Mass Effect: Andromeda, Plants Vs Zombies Garden Warfare 2, Mirror’s Edge Catalyst, and Need For Speed were the highlights of EA’s presentation. Moreover, with the continued strength of Xbox One and PlayStation 4, more gamers were eager to have a look at the upcoming games at the event. Excitement High For New Editions Of Sports Titles FIFA 15 and Madden NFL 15 are the most popular sports titles in their respective geographical regions, and still continue to contribute heavily to the company’s overall revenue growth. According to VGChartz, FIFA 15 sold over 16.86 million units through June 27, 2015. Trefis estimates the number of FIFA units sold to increase 6% y-o-y, compared to 27% last year, due to the absence of any major soccer tournament this year. Nonetheless, it was still the major cash minting title for the company in the second quarter, as its popularity is enormous among the sports fans. On the other hand, Madden NFL continues to drive revenue growth in the North American region, with close to 6 million unit sales since its launch. EA is all set to release this year’s edition of the sports titles in the second quarter of the fiscal 2016, with FIFA 16 coming out in September 2015 and Madden NFL 16 in August 2015. Apart from these major franchises, NHL 16 and NBA Live 16 are a few other titles to launch in the market. Anticipations are already high among the sports fans. Digital Growth: Future Of The Company EA’s non-GAAP digital revenues rose 10% year-over-year to $482 million in the June-ended quarter, accounting for 76% of the total revenues. This high percentage of contribution indicates the shift of gamers’ interest to online gaming and downloadable content. Battlefield 4 and Battlefield Hardline’s 170 million of online game-play hours, growth of The Sims 4 community, and an 85% year-over-year (y-o-y) increase in gameplay hours of The Sims FreePlay were a few of the factors resulting in such high digital growth. Apart from this, Ultimate Team modes further boosted the category’s performance, with over 2 million players per day in the first quarter, up 20% y-o-y. Total Ultimate Team was up 3% y-o-y in constant currency. Extra content and freemium contributed $255 million, up 21% y-o-y, with FIFA Online 3 driving the majority of this growth. Furthermore, EA Access, Origin, and Xfinity Games beta are engaging more gamers day by day, generating incremental revenues for the company. Digital extra content and advertising was up 11% y-o-y to $115 million, whereas premium mobile full-game downloads revenue declined 56% y-o-y. The company expects the digital downloads as a percentage of full-game sales to further increase in the coming quarters. Gamers Await Need For Speed Need For Speed is all set to make a comeback this year. EA announced its plan to bring back this all-time popular racing franchise. The game will be launched both for the consoles and the mobile devices, on November 3, 2015. The incremental revenues from this additional franchise will certainly boost the company’s revenue growth in the holiday season of 2015. (See: Sports Titles to be major growth drivers in Q1 2016 earnings for Electronic Arts ) Older versions of Need For Speed sold 4-5 million units on average, except Need For Speed:Hot Pursuit, which was a blockbuster hit. Considering the fact that this new title is coming after a one-year gap and its popularity is high among the racing fans, we can expect this year’s title to excel as well. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Leading oral care company Colgate-Palmolive (NYSE:CL) reported its fiscal 2015 second quarter earnings on July 30th. The company’s revenue and profits were heavily dragged down by significant negative impact of currency movements. Colgate-Palmolive derives a much higher proportion of its revenues from the emerging markets compared to its peers like Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL), which led to the severe currency impact. Colgate-Palmolive raised prices sharply during the quarter to offset the currency headwinds, which led to dampened volume growth. While the company managed to achieve volume growth in all but one of its geographical markets, we believe that further sustained price hikes could have meaningful negative impact on Colgate-Palmolive’s volume growth. In the second quarter, Colgate-Palmolive’s organic revenue growth of 5.5% year on year was more than offset by a currency impact of 12 percentage points. As a result, its second quarter revenues contracted by 6.5% year on year and fell to $4 billion. Further, higher than expected currency impact inflated material costs heavily, causing a 3.5 percentage points drag on the gross margin. This was partially offset by higher pricing and cost savings from the Funding the Growth program, which restricted the gross margin contraction to 50 basis points compared to the previous year. Our price estimate of $60 for Colgate-Palmolive is about 10% lower than its current market price. See our complete analysis for Colgate-Palmolive here No Respite from Currency Headwinds The impact of unfavorable currency movements on Colgate-Palmolive’s revenues seems to be getting worse with each quarter. In fiscal 2014, the company’s revenues faced a currency headwind of 6 percentage points. This increased to 10 percentage points in the first quarter of fiscal 2015, and 12 percentage points in the second quarter. The impact is likely to get worse over the next few quarters as the US dollar remains strong and most other major currencies remain weak. So far, Colgate-Palmolive had maintained the fine balance required between price hikes and volume growth that is necessary to achieve sustainable organic growth. However, the company faltered a little in the second quarter as it scrambled to raise prices in regions with unusually volatile currencies. For instance, the Africa/Eurasia region led the pack with a 21.5% adverse currency impact, forcing Colgate-Palmolive to raise prices heavily in an attempt to stop the revenue leakage. Similarly, higher pricing contributed as much as 9 percentage points to organic revenue growth in Latin America, as currency headwinds dragged revenues from the region down by 18%. However, the increased pricing resulted in muted volume growth of 0.5% in the region. However, Europe was an exception to the trend. Due to the deflationary conditions in Europe, Colgate-Palmolive reduced prices in the region despite a negative currency impact of 18 percentage points. The lower pricing helped the company boost volumes by 4.5 percentage points in the region. Colgate-Palmolive expects the adverse macroeconomic environment to continue in the near term. This includes sluggish consumption in most regions of the world and heavy currency headwinds for US-based companies. In order to stifle the disastrous currency impact, Colgate-Palmolive has planned further price hikes throughout the rest of the year. The muted second quarter volume growth suggests that the company may already be near the breakeven point between price hikes and volume growth. Thus, we believe that if the planned price hikes are too high, it could severely impede Colgate-Palmolive’s volume growth over the rest of the year. Cost Savings Wiped Out By Currency Impact Colgate-Palmolive could generally rely on its Funding the Growth program to provide some respite to the company and bolster its non-GAAP operating margin even in difficult conditions. However, in the second quarter, adverse currency movements had a massive impact on material prices. Consequently, commodity cost inflation dragged down Colgate-Palmolive’s gross margin by 230 basis points. This impact more than wiped out the 170 basis points benefit derived from the Funding the Growth program. However, management believes that it still has the potential to expand its gross margin by 50 to 100 basis points in fiscal 2015, compared to the previous year. We believe that achieving this target may be possible if Colgate-Palmolive is able to sustain the increasing rate of savings from its Funding the Growth program. For instance, the program yielded a benefit of 170 basis points in the first quarter, which increased to 230 basis points in the second quarter. If Colgate-Palmolive is able to continue this increasing rate of savings, it may be able to achieve its gross margin expansion target. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Expedia (NASDAQ:EXPE) delivered one of its healthiest performances in the second quarter of 2015. On the back of organic and inorganic growth, the company displayed a 15% year-on-year increase in revenues to $1.7 billion and 20% year-on-year growth in gross bookings ($15 billion). All of Expedia’s divisions displayed strong performance. Expedia’s global room nights, air tickets, and car rental days, experienced 35%, 26%, and 35% year-on-year growth, respectively. Its adjusted EBITDA grew by 12% year-on-year to $281 million. However, revenue per night declined by around 16% and the average daily rate (ADR) declined by 6%. Though the weak international exchange rate was to some extent responsible for this decline, the primary reason was Expedia’s lower commission strategy in international markets, and its huge spends on loyalty programs and promotions to rev up demand in order to gain a bigger share of the international online travel segment. A crucial reason for Expedia’s well-rounded performance was the sale of its majority stake in the Chinese online travel agency (OTA), eLong. We are in the process of updating our price estimate of $103 for Expedia’s stock . See Our Complete Analysis for Expedia Here Expedia Owes A Significant Portion Of Its Growth To The eLong Divestiture, However, Its China Focus Is Still Intact One of the primary reasons for Expedia’s strong performance in Q2 2015 was the offloading of its 62.4% stake in the loss making, Chinese OTA, eLong. eLong brought down Expedia’s financial performance in each of the last few quarters. After failing to revive in 2014, eLong recorded a $33 million EBITDA loss in the first quarter of 2015. This, in turn, weighed down Expedia’s EBITDA which grew by 25% excluding eLong, but declined by 5% after including eLong. In May 2015, Expedia sold its eLong stake to Chinese OTA leader, Ctrip (40% of shares) and other Chinese investors. Currently, Expedia and Ctrip have formed a partnership to share inventory in several geographies, primarily in the air and packaged tours segment. Additionally, Expedia has commercial agreements which allow its access to outbound Chinese travelers of Ctrip and eLong. Expedia’s brands, Expedia.com and Expedia Affiliate Network, are also displaying rapid growth in China. Brand Expedia has a presence in Hong Kong, with more future expansion planned in China. Chinese outbound travel displays high demand for package travel and Expedia’s management hinted that there might be future partnerships with local travel companies. Expedia Is Focusing On Expansion At The Cost Of Lower Commissions In its Q4 Earnings Call, Expedia announced that it had segmented its portfolio into four distinct businesses: the core OTA group, eLong, Trivago, and Egencia. The core OTA group comprises Expedia, Hotels.com, Travelocity, Wotif, Hotwire, Venere, and CarRentals.com. The core OTA group’s 15% growth to $1.5 billion was driven by brand Expedia and Hotels.com. This was complemented by healthy inorganic growth from Wotif and AirAsia-Expedia joint venture (where Expedia has a 75% stake). Wotif and AirAsia contributed to around 7 percentage points to Expedia’s global room night growth. Expedia added around 27,000 properties to its platform this quarter (including those from its acquisitions) and now has added more properties in the first half of 2015, than it added in all of 2014. This gives a perspective as to the rate at which Expedia is expanding its network. On the flip side, as Expedia is lowering commissions to get new hotels, the contribution per hotel is falling, as more smaller hotels are getting the opportunity to join Expedia’s platform. Expedia’s aggressive spending on loyalty programs is proving to be beneficial as an increased proportion of its business is being generated by repeat customers. Hence, the company’s focus on lowering commissions, spending on loyalty programs, and making investments on technology, seem to be generating a positive impact, though at the cost of less earnings from each hotel. Expedia’s “No” To TripAdvisor’s Instant Booking TripAdvisor’s Instant Booking feature is aimed at providing users with an end-to-end booking experience. Instant Booking (currently available in the U.S. and some select destinations) allow users to book hotels on the TripAdvisor platform itself with the “Book with TripAdvisor” option, as against visiting the hotel or OTA website to complete the booking process, after searching for hotels through TripAdvisor. According to Expedia’s management, even though Expedia participates as advertisers on TripAdvisor’s Market Place, it likely wouldn’t feature on Instant Booking. However, it is more open to displaying its products on Google ’s travel platform because Google doesn’t act as a merchant and directs the booking traffic to the OTAs. Basically, Instant Booking, to some extent, undermines the functionalities of OTAs like Expedia. With Instant Booking, all the steps of the booking process get completed on TripAdvisor’s website. Additionally, with TripAdvisor’s meta search option, Expedia can attract customers to its own websites, in order to eventually convert users to direct bookers. This would generate direct business in the future. The “Book With TripAdvisor” option associated with Instant Booking doesn’t allow that to happen. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

Riding high on sales growth, Restaurant Brands International Inc (NYSE:QSR), the parent company of Burger King and Tim Hortons, reported EPS of $0.30 in its second quarter fiscal 2015 earnings results, beating the market expectations by $0.06. The company reported net revenues of $1.04 billion, with strong comparable store sales growth of 5.5% and 6.7% for Tim Hortons and Burger King, respectively. Compared to the 2014 pro forma second quarter result prepared by the company, its adjusted EBITDA grew 19% to $427 million, due to strong performances by both the brands in their respective major markets. We have a $42 price estimate for Restaurant Brands International, which is roughly the same as the current market price. See Our Complete Analysis For Restaurant Brands International Tim Hortons: Breakfast Menu Drives Comp. Sales Tim Hortons’ comparable sales grew 5.4% in Canada and 7% in the U.S., driven by innovative menu items in both the food and beverage segments, especially Dark Roast coffee and the Crispy Chicken Sandwich. The performance of the brand was further driven by strong demand for cold beverages and by the breakfast segment. Compared to pro forma second quarter 2014 figures, Tim Hortons’ adjusted EBIDTA grew roughly 23% on an organic basis. Tim Hortons has always been consistent in introducing new innovative menu options to cater to the needs of customers in every season. The company opened 52 net new Tim Hortons restaurants in the second quarter, compared to 22 in Q2 2014. This takes the total count to 4,776 Tim Hortons restaurants. The company still remains the category leader in Canada and is confident to increase their presence there. In the U.S., Tim Hortons owns close to 900 restaurants in nearly 18 states, but still has a lot of growth potential in the country. The company has increased its pace of new store developments over the last 5 years. Menu innovations and strong growth in new store development have contributed significantly to Tim Hortons’ revenue growth . Moreover, with just 65 Tim Hortons store locations in the Middle East, the company is missing out on several major markets around the globe, and hence, the company plans to accelerate the expansion in high growth markets in the coming years. Burger King: New Markets In Focus Burger King posted a strong 7.9% increase in comparable store sales in the U.S. and Canada, and 5.1% growth in EMEA (Europe, Middle-East and Africa) region, both much higher than that in Q2 2014. Impressive comparable sales growth in all the geographical segments, coupled with net restaurant growth of 141 new stores helped Burger King in achieving an 11.6% year-over-year increase in system-wide sales. Burger King’s strategy of introducing fewer menu items with less operational complexity and more profitability is helping the company to post higher margins. New menu items in its breakfast category, such as Extra Long Pulled Pork sandwich and premium menu items, such as A1 Hearty Mozzarella Bacon Cheeseburger, have been receiving positive response from the customers, resulting in more customer footfall in the breakfast daypart. On the other hand, Burger King continues to expand its presence in new markets, such as India and South Africa. The company thinks of India as the next big market for the brand, and has currently 20 restaurants in the country. New Burger King stores were established in Italy and Poland in the second quarter, as the company plans on expanding its existing presence in Southern and Eastern Europe. Furthermore, Burger King announced that it will open 350-400 restaurants in France in the coming few years. The merger of Tim Hortons with Burger King has strengthened the company’s market share in the breakfast market, and has also boosted the top-line performance, with a lot of growth opportunities lined up in fiscal 2015. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

It seems Dunkin’ Brands (NASDAQ: DNKN), the parent company of two iconic brands: Dunkin’ Donuts and Baskin-Robbins, is paying all its attention to its U.S. business, as the company reported excellent comparable sales growth in the U.S in its Q2 2015 earnings results, but witnessed disappointing performance in its international segments. Dunkin’ Donuts U.S. posted 2.9% growth driven by tremendous customer response to beverage items and Dunkin’ Donuts Perk program, whereas Baskin-Robbins U.S. delivered 3.4% growth in the comparable store sales boosted by new ice-cream flavors. On the other hand, Dunkin’ Donuts International posted flat growth, whereas Baskin-Robbins International delivered a 2.5% decline in comparable sales. Dunkin’ Brands’ net consolidated revenue for the quarter rose more than 10% year-over-year (y-o-y) to $211 million, with diluted EPS of $0.44. We have a $54 estimate for Dunkin’ Brands, which is roughly the same as the current market price. See full analysis for Dunkin’ Brands Robust Growth In U.S. Continues One of the striking highlights of Dunkin’ Brands quarterly results over the past few quarters has been its strong comparable sales growth for both the brands in the U.S. On one hand, Dunkin’ Donuts U.S. has been consistently posting positive comparable store sales growth driven by increasing customer traffic and coffee sales, whereas on the other hand, Baskin-Robbins U.S. has been witnessing significant growth in sales due to online cake ordering and an increase ice-cream sales. Dunkin’ Donuts U.S. has been enjoying the increase in customer count, as well as rise in average transactions. Both these factors accounted for 60 basis points improvement in comparable sales in Q2 2015. Apart from the menu innovations and expanding beverage portfolio, Dunkin’ Donuts’ Perks Loyalty program and other reward initiatives have been driving customers in all the day-parts. With more than 30 million app downloads and roughly 3.2 million DD perks active members, the brand is planning to expand the customer base further with additional features, such as mobile ordering. Dunkin’ Donuts U.S. aims to deliver a 1% to 3% comparable sales growth in the fiscal 2015. Baskin-Robbins U.S. is one of the highest growing segments for the company. Including this quarter, Baskin-Robbins U.S. posted positive comparable sales in 15 out of the last 16 quarters. Online cake ordering, strong performance of all the major categories: cups & cones, desserts, beverages, and sundaes; as well as success of the recent promotional offers started by the brand in the U.S., helped the segment in delivering yet another strong performance. Baskin-Robbins International: Headwinds Continue To Hamper Growth The concerning factor for the company is its business internationally, where both the brands have been struggling to make a powerful impact. Baskin-Robbins International delivered yet another disappointing quarter with a 2.5% decline in comparable store sales. The company mentioned that its business in South Korea, which accounts for a major portion of sales for both the brands internationally, was affected due to the outbreak of MERS virus, and are expecting some lingering impact in the third quarter as well. To add to this, a shift in Ramadan days also partially impacted the sales in Middle East countries and South East Asian markets. The only good thing for the company is the fact that cake sales actually grew 10% y-o-y, despite these headwinds. According to Trefis estimates, the revenue contribution of Baskin-Robbins International has declined to 16.4% in 2014, from 17% in 2011. Launch Of K-Cups To Retail Stores In February 2015, Dunkin’ Brands and Keurig Green Mountain (NASDAQ:GMCR) announced the decision to expand their partnership for the manufacturing, marketing, and distribution of Dunkin’ K-Cups available in retail stores in the U.S. and Canada; and on online platforms. Further in May 2015, the Dunkin’ Donuts K-Cup Packs were made available in retail stores nationwide. The launch of these K-Cups through retail channels has over-exceeded the company’s estimates, and as a result, the company received approximately $3 million in additional revenues in the quarter. New Store Developments: Picking Up Pace Being one of the fastest growing companies by unit count among the U.S. fast food companies, Dunkin’ Brands has been successful by far in accomplishing its target to expand in the untested markets. In the second quarter, the company added 154 net new restaurants, out of which 80 were Dunkin’ Donuts U.S. stores, taking the total count of DD U.S. stores in the first half of 2015 to 158 net new units. By region, 16% of the net new stores were opened in core markets, 26% in established markets, 21% in emerging markets, and the remaining 265 in Western markets. Dunkin’ Donuts has opened 10 stores in California, and plans to open a few more by the end of this year. With this pace, the company is confident of achieving its target of 410-440 net new DD U.S. stores in 2015. On the other hand, Baskin-Robbins opened 6 stores in the U.S and 55 stores internationally . Earlier this year, Dunkin’ Brands also announced its intent to expand Dunkin’ Donuts in China. The company has signed a long-term franchise agreement with Golden Cup Pte. Ltd, as wholly owned subsidiary of RRJ Capital Master Fund II, which will serve as the franchise partners to open and operate nearly 1,400 Dunkin’ Donuts stores in the country. The improving situation for Baskin-Robbins in the U.S. and strong comparable store sales for Dunkin’ Donuts U.S. will help the company achieve its full year targets with ease. However, the only concern is the situation and performance in international markets. If, as the company says, those headwinds are temporary and the situations will improve in the next two quarters, we can see further improved performances from Dunkin’ Brands both financially and operationally. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Abercrombie & Fitch (NYSE:ANF) is risking much by taking a giant leap in its retailing strategies in order to compensate for its lack of evolution. When consumer taste across the industry was shifting from basic logo merchandise to fashion-forward products, Abercrombie failed to age accordingly. Now, with drastic change in its store environment and product portfolio, it is hoping to become an apparel powerhouse yet again. Many are skeptical about Abercrombie’s sudden change in merchandise portfolio from mostly basic to mostly fashion stating that it can drive away remaining customers, but we believe that it can work out for the best. A complete transition in product portfolio and brand image is proving a “sisyphean” task for other basic apparel retailers who continue to see their sales plummet. However, with sales already falling for Abercrombie, it feels that there is no point waiting long to position its entire merchandise portfolio inline with prevailing consumer taste. Though there is an element of risk involved, potential rewards are high as a successful transition in products and brand image can reverse the declining trend in Abercrombie’s revenue per square feet, thus justifying our price estimate for the company. Better than expected reception of new products speeding recovery in revenue per square feet across the board holds a potential of over 5% upside for the company. On the contrary, if the risk taken does not pay off and revenue per square feet for the retailer’s brands continues to decline even at a moderate pace, it can lower the company’s value by almost 5%. However, Abercrombie’s sales were falling anyway, but the risk it has taken presents it with a chance to trigger a revival. Our price estimate for Abercrombie & Fitch stands at $29.44, which is about 30% above the current market price. See our complete analysis for Abercrombie & Fitch Rewards At Hand Abercrombie’s revenue per square feet fell significantly in 2013 and 2014 due to weak response to product offerings. While we project that this decline will continue in mid single digits in 2015 due to the ongoing portfolio transition, figures are expected to improve next year, thanks to the availability of a huge variety of fashion-forward merchandise. Last year, in an earnings call, management announced that they will reduce their logo business to “almost nothing” within 12 months and replace it with fashion-forward inventory. The company has been on-track with this strategy so far, removing most of the basic merchandise range from its stores. Though this had weighed heavily on Abercrombie’s sales, it does make way for fresh and more attractive inventory, which should help it entice more customers. In fact, there were some latent signs of recovery in the last quarter in the form of relatively weaker decline in comparable sales, thanks to comparatively better penetration of fashion merchandise in overall portfolio. Once Abercrombie completes the transition and has only fashion forward merchandise in its inventory, it can attract more buyers who are currently shopping at Zara and Forever 21. Risk Involved The risk involved in this strategy is that customers may not be able to digest such a drastic change in the brand they have always known for premium basic merchandise. Hence, Abercrombie can lose its loyal customers while trying to gain new ones. Something like this happened with Aeropostale (NYSE:ARO) back in 2013, when it integrated much fashion in one of its seasonal launches, which only confused buyers. Customers accustomed to shopping for basic jeans and t-shirts at Aeropostale shied away from unusual merchandise on display, and others did not want to buy fashion-forward products from a retailer known for cheap basic merchandise. These factors may not prove as intense for Abercrombie, but they could trouble it nonetheless. However, Abercrombie is willing to take this risk in order to recreate itself in the U.S. apparel market. It now depends on how effectively it can market the change in its retail strategies. The Risk-Reward Balance After gauging risks and rewards related to aggressive portfolio transition, we have projected only a moderate increase in Abercrombie & Fitch’s (ANF), Hollister’s and abercrombie kids’ revenue per square feet going forward. We believe that despite the complete change in products on offer, brand perception will not change overnight and hence, growth in revenue per square feet will be slow. Moreover, increasing competition and falling foot traffic can offset Abercrombie’s efforts, keeping a check on its growth. However, the increase in revenue per square feet metrics for all brands will most likely remain steady, given that the retailer will be offering products that customers desire. We forecast that over the next five or six years, revenue per square feet for all the brands will only be slightly above their respective 2014 levels. If customer response to updated product mix turns out better than expected, pushing long term revenue per square feet forecast for ANF and Hollister to $450 and $390, respectively, up from the current projections of $420 and $366, there can be an upside of about 5% to our price estimate for Abercrombie. On the contrary, it these figures move down to $375 and $328, respectively, there can be over 5% downside to our price estimate.

AIG (NYSE:AIG) is scheduled to report earnings for the second quarter of 2015 after markets close on Monday, August 3. The last few quarters have seen improvements across business lines at AIG, as operating efficiency has also improved. Property and casualty (P&C) insurance has been a key driver in the turnaround for AIG. During the first quarter, the company reported solid net income on the back of improvement in underwriting in the P&C division. During the second quarter, we expect AIG’s underwriting performance to further improve. However, the company will likely continue to be affected by persistent low interest rates, which will impact investment income. In this note, we discuss the key trends that are expected to drive AIG’s earnings during the second quarter. We have a price estimate of $64 for AIG’s stock, which is slightly below the current market price.

DuPont (NYSE:DD) recently announced its 2015 second-quarter results. The company’s GAAP net income per share declined 10.4% year-on-year to $1.03. As expected, most of the decline in the company’s EPS came from lower agricultural products sales volume and the negative currency translation effect induced by the appreciation of the U.S. Dollar against most international currencies. In the agricultural products segment, DuPont’s second quarter sales volume declined primarily because of lower corn-seed sales as farmers increasingly shifted away from planting corn this year due to the oversupply situation, which has been weighing on corn prices in the commodity markets over the past few quarters. In addition to lower corn-seed sales, a stronger U.S. Dollar stripped off $0.17 per share from its second quarter EPS. In view of continued headwinds from a projected decline in corn-planted area in the U.S. and the strengthening U.S. Dollar, DuPont now expects its full-year operating earnings per share to be around $3.10 per share, excluding $0.80 per share of anticipated full-year earnings from the Performance Chemicals segment, which was recently spun off into a separate entity named Chemours Co. This represents a $0.10 per share reduction from the company’s previous full-year earnings guidance of about $4.00 per share, which included the Performance Chemicals segment. DuPont generates annual sales revenue of around $35 billion by supplying high-performance materials, coatings, electronic materials, and agricultural products to industries and consumers worldwide. Most products manufactured by DuPont are used as raw materials by other industries, making it a predominantly B2B (business-to-business) based company with the exception of the agriculture and nutrition divisions. Its consolidated adjusted EBITDA margin stood at around 20% last year. Based on the second-quarter earnings announcement, we have revised our price estimate for DuPont to $53 per share, which values it at 17.4x times our 2015 full-year adjusted diluted EPS estimate of $3.04 for the company. See Our Complete Analysis For DuPont Lower Corn-Seed Sales According to our estimates, DuPont’s Agricultural Products division contributes the most, around one-third, to its total value. In 2013, the division posted the highest revenue growth (13% y-o-y) within the company’s diversified portfolio, on robust demand for its AQUAmax and AcreMax seed products and Rynaxypyr insecticide. However, the division’s growth prospects have been significantly challenged since last year’s decline in seed prices and a shift away from corn planting. In 2014, DuPont’s agricultural products sales revenue declined by 3.7% and margins shrunk by almost 50 basis points y-o-y, by our estimates. This had a significant impact on the company’s overall earnings growth during the period because agricultural products contribute more than 37% to the company’s total consolidated sales revenue. The operating environment for Dupont’s agricultural products division continues to remain challenged this year as well, because seed prices are expected to remain low – mostly because of a continued oversupply situation driven by yield improvements and favorable weather conditions in the U.S. In addition, farmers are expected to continue to move away from planting corn this year as well, because of better returns on other crops. According to the latest World Agricultural Supply and Demand Estimates published by the United States Department of Agriculture (USDA), corn planted area in the U.S. is expected to decline from around 95.4 million acres last year to 90.6 million acres in 2015, while corn production is still expected to surpass last year’s record level due to a significant improvement in projected yield per harvested acre. This essentially means lower demand for DuPont’s corn seeds, which account for approximately 50% of its agricultural products division’s total sales revenue. During the second quarter, the company’s sales and operating earnings from the division declined by around 11% and 7% y-o-y, respectively. Going forward, DuPont expects the division’s operating environment to remain challenged in the short term and has guided for a high-single-digit percentage decline in sales and a low-twenty percentage fall in operating earnings for the full year. Currency Headwinds DuPont has operations in more than 90 countries worldwide and about 60% of its consolidated net sales revenue comes from international markets. Since the company operates primarily in local currency in these markets, a strengthening U.S. Dollar negatively impacts its financial results. The U.S. Dollar has strengthened significantly against many international currencies, especially the emerging market currencies, since the second half of 2013, when the U.S. Federal Reserve started scaling back its bond-buying program. According to historical currency charts provided by xe.com, the U.S. Dollar has strengthened by around 21%, 51%, and 66% over the last twelve months against the Euro (EUR), Brazilian Real (BRL), and the Russian Ruble (RUB), respectively. Based on the average basket of exchange rates for its business, DuPont currently expects the strengthening U.S. dollar to drag down its 2015 full-year earnings by $0.60 per share. Although, we believe that the actual impact on earnings could be higher since the depreciation of a local currency against the U.S. dollar might lead to higher relative prices of DuPont’s products in the local market, thereby weakening its competitive positioning, as well. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Facebook (NASDAQ:FB) delivered a strong quarter in Q2 2015, with top-line growth of 39% and healthy growth across user metrics. However, its GAAP operating margin dipped to 31% as compared to 48% in Q2 2014, owing to a planned increase in operating expenses. The company’s top-line growth is expected to slow in the coming quarters, owing to difficult year-over-year comparisons, currency headwinds, as well as a decline in the PC gaming business. At the same its margins could continue to slip as its expenses (in GAAP terms) are forecast to rise by 55% to 60% during the year. However, we believe the company’s long-term growth outlook remains strong as it has multiple growth levers, including Messenger, Whatsapp, Instagram, Search, Oculus, etc. We believe each of these platforms will contribute significantly to the overall revenue stream in the coming years.

The media industry remained active this past week with Disney’s CEO stating that ESPN will eventually be sold directly to customers. In another note, major cable news networks, including Fox News, saw a ratings uptick in Q2. In yet another, CBS’ Showtime says that September will mark Mayweather’s last fight. On that note, we discuss below these developments related to media companies over the last week or so. Also, the upcoming week will be eventful as major media houses, including Disney, Viacom, Fox, CBS and Time Warner will report earnings.

CME Group (NASDAQ:CME) announced its Q2 earnings on Thursday, July 30, reporting a 12% rise in net revenues to $820 million for the quarter. Solid trading activity through the quarter was largely responsible for driving company-wide revenue growth. Trading commission revenues were up by 12% y-o-y to $682 million in the June quarter. Correspondingly, CME reported a 6% year-over-year rise in trading volumes in Q2 to 13.3 million contracts traded per day. Additionally, market data revenues rose by 15% over the prior year quarter to $103 million in Q2. CME’s access and communications fees and other revenues combined were also up by over 8% y-o-y to $35.2 million in the June quarter. According to our estimates, CME’s adjusted EBITDA margin in Q2 improved by over 250 basis points over the prior year period to about 67.5%. Since most expenses incurred by exchanges are fixed in nature, the rise in trading activity led to improved margins for the exchange operator.

Leading semiconductor provider for wired and wireless communications Broadcom (NASDAQ:BRCM) reported its Q2 2015 earnings on July 30th. While the company saw continued growth momentum in the quarter, its revenue and earnings per share (EPS) came in slightly below analysts’ expectations. As expected, Broadcom’s operating performance continued to improve on account of tight operating expense discipline and strong margins. Acknowledging that Broadcom’s Q3 2015 guidance came in below Wall Street estimates, we believe the company will continue to grow in the future, driven by product cycles and new launches from key customers. Additionally, the takeover by Avago will make the combined entity (to be known as Broadcom) the third largest U.S. semiconductor supplier, with a much broad circuit offering. In light of Broadcom’s pending transaction with Avago, Broadcom did not conduct a conference call with analysts and investors to discuss its financial results. A Quick Snapshot of Q2 2015 Earnings At $2.10 billion, Broadcom’s Q2 2015 revenue was up 1.8% quarter on quarter and 2.7% year on year, driven by growth in high-end smartphones, broadband access, and networking markets. Gross margin improved to 55.2% compared to 52.8% in Q1 2015 and 50.8% in Q2 2014. GAAP net income came in at $386 million (diluted EPS of $0.63), compared to $209 million in Q1 2015 and a net loss of $1 million in Q2 2014. Non-GAAP net income of $445 million (diluted EPS of $0.72) increased 14% quarter on quarter and 53% year on year. Broadcom did not provide segment-wise breakup of revenue and operating income in its Q2 2015 earnings release. We are in the process of updating our price estimate of $44 for Broadcom to incorporate Q2 2015 earnings. See Our Complete Analysis for Broadcom Here Avago-Broadcom Will Be The 3rd Largest U.S. Semiconductor Maker By Revenue; The Deal Is Expected To Close By Q1 2016 Last month, Broadcom entered into a definitive agreement with Avago Technologies, where the latter will acquire the former in a cash and stock transaction that is structured such that the combined company will have an enterprise value of $77 billion. Under the terms of the definitive agreement, Avago will acquire Broadcom for $17 billion in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at close to $20 billion. The transaction is expected to close by the end of the first calendar quarter of 2016 and is subject to regulatory approvals in various jurisdictions. Avago Limited is a leading designer, developer and global supplier of a broad range of analog semiconductor devices, with an extensive portfolio in four key markets: wireless communications, enterprise storage, wired infrastructure, and industrial and other. Broadcom is a global leader and innovator in digital CMOS semiconductor solutions for wired and wireless communications. The company is best known for its connectivity chips, which are used widely in smartphones made by Apple (NASDAQ:AAPL) and Samsung Electronics (OTC:SSNLF) and wireless connectivity devices. The combination of Avago and Broadcom will create a global diversified leader in wired and wireless communication semiconductors. The combined company, to be based in Singapore and known as Broadcom, will be the third-largest U.S. semiconductor supplier, behind Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM), and the sixth largest in the world according to final annual semiconductor market shares. The transaction brings together Avago’s offering of analog devices for Wireless and Optical applications and Broadcom’s great strengths in digital Ethernet, cable and Wireless connectivity products. As such there is notably little overlap in their respective product offerings, though they to a degree serve shared markets. There are thus synergies to be had in sales and marketing, as well as operations. Q3 2015 Guidance - Net revenue of $2.135 billion, +/- $75 million. - GAAP and non-GAAP gross margin of 53.8% and 55.3%, +/- 75 basis points, respectively. - R&D and S,G&A expenses to be down $10 million sequentially, +/- $10 million. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Merck (NYSE:MRK) was quite unlucky with Remicade, even though the marketing rights for the drug are shared by both J&J and Merck. While J&J markets the drug in the Americas, Africa, Asia-Pacific and the Middle East, Merck controls its European business. As a result, the double impact of Euro depreciation and early approval of biosimilar in the region hit Merck’s revenues hard in the second quarter of 2015. Remicade’s sales attributable to the company dropped by 25%, amounting to $455 million. The price discount of the biosimilars was higher than expected, as high as 45% as opposed to the previous expectation of 30%, and the new patient additions will accelerate the sales decline. So how much weight should investors give to this problem? We believe that much of the future decline has been priced in the stock. Investors should also note that Remicade accounts for less than 5% of Merck’s value according to our estimates. If the decline is much sharper than expected, even then the valuation impact will be of the order of 2%-3%, which is not material. We remain positive on the stock due to the immense potential that Keytruda holds, and Merck’s efforts to gain ground in the global Hepatitis C Market. Our price estimate for Merck stands at $64.50, implying a premium of about 10% to the market price.

When times are tough, even the most resilient players feel the pressure. As expected, headwinds in certain crucial beer markets dragged down Q2 results for the world’s largest brewer, Anheuser-Busch InBev (NYSE:BUD). Revenues declined 9% in the quarter to $11.1 billion from $12.2 billion a year ago, including a 2.2% fall in volumes (organically). Considering approximately 70% of AB InBev’s top-line comes from markets outside the U.S., the strengthening U.S. dollar against certain foreign currencies dealt a blow to the brewer’s financials. The currency was an 11 percentage point headwind on the net sales this quarter. The gist of the quarterly results was the weaker performance in the top markets. In the U.S., Brazil, and Mexico – three of the four largest markets for AB InBev – the brewer holds 50% or more volume share. It’s tough for the maker of Budweiser, Corona, and Stella Artois to hold on to such massive shares in these markets, and even tougher to achieve further growth. And with the general tepid global economic environment and volatility in markets such as Brazil, Russia, and even China, the beer market is facing headwinds. We have a $122 price estimate for Anheuser-Busch InBev, which is slightly above the current market price. See Our Complete Analysis For Anheuser-Busch InBev Just after the announcement of Q2 results, AB InBev’s share price dropped by ~5%, reflecting how lower revenues and profits hurt investor perception, as well. The company has looked to invest more in expanding its reach through mergers and acquisitions, which has also helped grow margins due to the benefit of economies of scale. However, the fall in organic volume sales is testament to how the tough market conditions are getting to even the biggest and sound beverage companies. United States Sales Continue To Decline, But This Time By More The U.S. contributes roughly 30% to AB InBev’s top line and is the single largest market for the brewer– also the toughest to achieve growth in presently. Not only is the beer market in the country mature, with industry selling-day sales to retailers (STRs) down in the last few years (with the exception of 2012), but Anheuser is also losing its strong grip in this market. According to Anheuser’s estimates, the industry-wide selling-day adjusted sales-to-retailers declined 0.6% in 2014, after a larger 1.8% decline in 2013 and, in the first quarter, the figure fell by only 0.5%, which could have meant that the market might be ready to return to some sort of growth. However, industry STRs are down again by 1% in this quarter, with the brewer’s own STRs down 2.2%– all of which is not good news. With a mature beer market and an already peaking market share for Anheuser, it might be difficult to extract more growth, going forward. What’s worse for AB InBev is that its presence is mainly in the domestic beer category, which is the most underperforming category of the U.S. beer market. Both Bud Light and Budweiser lost more market share this quarter. In a bid to reverse this declining trend, the company has looked to penetrate the craft and imported beer segments which, although they are only 26% of the beer market presently, are growing by solid high single-digit percentages. In addition, the successful product launches in the premium and flavored drinks categories, such as Bud Light’s Lime-a-Rita drinks, have helped boost sales. But the presence of AB InBev in these segments is still much lesser than that in the domestic beer category, less enough to not have a huge impact on the brewer’s net sales at least for now. At the start of the year, it was thought that the low gas prices and improving economic environment in the U.S. could maybe propel growth in the country’s ailing beer market, as well. However, with six months gone and industry STRs down a further almost 1% from 2014 levels, growth might be hard to come by. That’s more bad news for AB InBev. Volatility in Brazil And China Keeps AB InBev’s Growth In Check Anheuser’s beer volumes were down 8.6% year-over-year in Q2 in Brazil, which theoretically has a huge potential to grow because of the low current beer penetration in the country. But with economic conditions remaining weak, coupled with high interest and inflation rates, and negative customer sentiment, consumer spending has taken a hit in the country. In addition, as the company was overlapping the strong growth in volume sales due to the FIFA World Cup activation this time last year, beer volumes were hurt by as much as 5.5 percentage points in Q2. Where growth lies in Brazil, in the near term, is increasing beer revenue per hectoliter, which rose by 15% this quarter. Economic inequality in Brazil is one of the highest in the world. High interest and inflation rates and tight credit availability don’t tend to adversely impact the more affluent individuals, and this could be one of the reasons why AB InBev’s premium beers have grown at a rapid pace in the economy that is otherwise struggling. On the other hand, growth in China’s beer market has been thwarted by the slowing economic conditions, with a 6.5% fall in industry-wide volumes in Q2, after a 2% fall in Q1. The good news for AB InBev is that although the market conditions remained harsh, the brewer’s volumes remained essentially flat in this market, growing the company’s share to 18%. Once beer demand in China starts to rise again, AB InBev could be in good shape to further improve volumes organically, considering that the brewer has remained resilient even in tough times. A shaky first half for AB InBev, especially in the top markets, raises concerns over growth in the near term. This could also be a near term headwind, perhaps, at least where currency translations and volatility in South America and Asia are concerned. However, the beer business in developed markets is mature and AB InBev is losing share in traditional domestic segments, and these factors will persist even when global economic conditions improve. So, the brewer will aim to grow its revenue per hectoliter in the absence of solid volume growth, in a bid to drive revenues up. But will that be enough? Maybe they will look to more acquisitions in the future to grow inorganically? Time will tell. See the links below for more information and analysis: Does the declining U.S. beer trend spell doom for brewers? Can Anheuser achieve more growth in the U.S.? Diageo could be a good buy for Anheuser-Busch InBev What does North America have in store for Diageo Trefis analysis: Anheuser-Busch InBev North America Volumes Trefis analysis: Anheuser-Busch InBev South America Volumes View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Time Warner Cable (NYSE:TWC) reported its second quarter earnings recently. The company added 172,000 high speed data subscribers but also lost 45,000 pay-TV subscribers during the quarter. This result underscores the changing complexion of Time Warner Cable’s (TWC) business. Even though the company made its name in the past selling cable services, it is the high speed internet segment that is leading the growth charge in recent years. We expect the company’s high-speed Internet business to continue to bring in more customers, while its pay-TV business will likely continue losing customers in the foreseeable future. However, the growth in pay-TV ARPU will compensate for the subscriber losses and keep pay-TV revenues stable in the coming years.

Deutsche Bank (NYSE:DB) reported better-than-expected results for a second consecutive quarter on Thursday, July 30, thanks to another solid run by the investment banking arm and a record performance by the asset management division. This strong performance helped the German banking giant overcome a €1.2 billion legal charge over its legacy U.S. mortgage-related lawsuit to report its best second quarter results since Q2 2011. The fact that loan provisions fell to just €151 million ($165 million) in Q2 – the lowest for any quarter since Q2 2008 – also benefited the bottom line. While investors were happy about the results for the quarter, their confidence in Deutsche Bank’s future was reaffirmed by CEO John Cryan’s commitment to focus on four key areas in the near future: reducing costs, clearing the legal backlog, shoring up the balance sheet and improving shareholder returns. Cryan also expressed his support to the long term reorganization plan, Strategy 2020, announced by his predecessors in April (see A Detailed Look At Deutsche Bank’s New Reorganization Plan ‘Strategy 2020′ ).

It’s been a topsy-turvy year for Volkswagen AG (OTCMKTS:VLKAY) so far, and the Q2 results, announced on July 29, shed more light on this. On one hand, there is the almost 5% rise in operating profit to 3.49 billion euros ($3.82 billion), but on the other, is the volume sales decline of 2.7%. Revenue growth remained strong in Q2 at 10% year-over-year. So should one overlook the volume decline (0.5% decline through June) and focus on Volkswagen’s growing revenues and profits? Probably not the best idea. Volkswagen may have overtaken Toyota as the world’s highest-selling automaker this year, but this was because Toyota’s volumes declined by even more (1.5% decline through June) than that at the German company. In fact, this is probably exactly what Toyota foresaw when the company decided to put off building new manufacturing plants till at least next year, and focus on profitability and improving service quality and workers’ skills. On the other hand, Volkswagen has continually pushed for more volumes and capacity, which is why the volume decline has been a very unfavorable outcome this year. See Our Complete Analysis For Volkswagen AG Around one-third of the 10% revenue growth this quarter has come from positive currency translations for Volkswagen, which realizes its revenues and profits in euros. So the organic growth is less. What is going for the German automaker is a better product mix, all thanks to its well-performing premium brands Audi, Porsche, and Lamborghini, which do more than just offset the instability at the core namesake passenger vehicles division. The Volkswagen group’s automotive margins are just above 6%, mainly due to the more profitable luxury brands, but this is still much lower than the margins reported by Toyota, which range between 9-10%. Audi’s 9.7%, and Porsche’s industry-leading 15.7% operating margins, are instrumental in pushing Volkswagen’s profitability up. The luxury brands are not only more profitable, but are also selling more units than the ailing namesake passenger cars brand, which is why the product and price mix is up. But in order for the group to grow strongly, the Volkswagen Passenger Cars division will also need to step up. After all, the division alone forms ~60% of the net volume sales for the company. The 2.6% operating margins are dragging down Volkswagen’s overall profitability. Lower-than-expected volume sales (volumes fell 3.9% year-over-year through June), and high research and development costs incurred by the group to push for innovation are hurting profitability at the ailing vehicle division. The company is now aiming to save around 10 billion euros ($12.4 billion) through efficiency initiatives, with the target of 5 billion euros worth of cost-savings at its own-branded passenger vehicle division by 2017. In effect, the automaker aims to improve operational return on sales for its passenger cars to at least 6% by 2018, up from 2.5% last year. Apart from the push for more profitability, Volkswagen will aim to reverse its declining volumes trend in the second half of the year. Sales in Europe have shown improvement this year, but softer sales in China remains an area of major concern. Passenger vehicle sales rose only 4.8% year-over-year through the first half in the country; the growth rate being 6.3 percentage points lower than 2014 levels. Volkswagen recorded a 3.9% decline in vehicle deliveries in the country, thus losing market share. There has been a shift in consumer preference from the well-known higher priced foreign-made vehicles to budget SUVs and sedans, which has hurt Volkswagen’s volumes as well as mix. There is more growth in Tier 3, 4, and 5 cities and in smaller, compact vehicle segments, which is making the mix negative. Volkswagen is losing share to both foreign automakers such as GM and Ford, and domestic automakers, which have seen their market share rise 3.5 percentage points in China through June. The company hasn’t been prompt in responding to the changing customer preferences in China, and the shift towards budget SUVs and Crossovers. The group’s Chief Executive, Martin Winterkorn, has said that the group is lining up a family of budget cars in the country that will include an SUV and a hatchback in 2018, and the cars will be priced between €8,000-€11,000 ($9,000-$12,300). Earlier in 2013, Volkswagen planned to launch the budget family for emerging markets by 2016. Not only has the time of launch been delayed, but the price range for the concept models is also higher than the previous target of €6,000-€8,000, making them more expensive for the entry-level segment. Lower than expected sales in crucial markets such as China, and the U.S., and narrower margins than its closest competitor, remain some of the key issues that are obstacles to Volkswagen’s growth at present. See the links below for more information and analysis: Volkswagen’s split could be good news Volkswagen: turnaround in the U.S. fortunes? Mercedes-Benz is catching up with competition in China Who will gain most from the large SUV/Crossover demand in the U.S.? Trefis analysis: Volkswagen China and Affiliates Vehicles Sold Trefis analysis: Volkswagen Passenger Cars, SEAT, LCVs Revenues Trefis analysis: Volkswagen Audi Revenues View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

United Parcel Service (NYSE:UPS) announced its second quarter earnings results on Tuesday, July 28. The company reported a 12% increase in its second quarter earnings per share to reach $1.35, compared to consensus estimates of $1.27, as margins improved significantly at its international package volumes increased on Europe trade. UPS’s Domestic Package’s margins suffered due to weak fuel surcharge revenues. However, investors were pleased with the double digit earnings growth, which helped the stock rise 5% on the day earnings were released. The company’s second quarter revenue declined 1.2% year-on-year, to reach $14.1 billion, due to foreign currency headwinds and lower fuel surcharge revenues. Excluding the impact of foreign currency, the top line grew 1%. The company’s efforts to improve profitability and fuel tailwinds paid off during the quarter, with operating income increasing to $1.96 billion, compared to adjusted operating income of $1.81 billion in the prior year period.

Disney’s (NYSE:DIS) movie business has seen steady growth in the past few years, led by strong franchises and sequels around Marvel, Pixar, and the Disney universe. Accordingly, the box office revenues have grown steadily and are expected to continue this trajectory. We believe that the studio’s popular franchises and characters such as Captain America, Avengers, Thor and Frozen, should continue to do well in the coming years. There were no signs of a lull in their recent sequels and their next sequels are eagerly awaited. Moreover, Disney will release Star Wars: The Force Awakens in December of this year and two more episodes are planned for the coming years. We believe that the Star Wars movies will be a game-changer for Disney’s studio operations and boost its global market share. Having said that, it must be noted that the performance of a studio can be erratic as it largely depends on the audience and box office response, which can be fickle and hard to anticipate. Star Wars could bring tremendous success for Disney across its portfolio of offerings, including television, theme parks and consumer products. Higher-than-expected growth in box-office revenues could add incremental revenues of $1 billion over our current forecast. This could trigger a 5% upside to the stock, in our estimation. Understand How a Company’s Products Impact its Stock Price at Trefis Disney’s Studio Has Increased Its Box-Office Market Share Through Acquisitions The studio business contributes more than 12% to Disney’s value, according to our estimates. Disney’s global box-office revenues have increased from $1.16 billion in 2008 to $2.14 billion in the calendar year 2014. Looking at the global box-office market share, it has been in the range of 7% to 10.5%. This growth can largely be attributed to its successful acquisitions in the past. Disney has added to its movie-making assets through a series of acquisitions, including the purchases of Pixar (for $7.4 billion), Marvel (for $4.2 billion), and Lucasfilm (for $4.1 billion). Lukasfilm, in fact, was the maker of the earlier Star Wars films, which have a huge fan following, with close to 14 million followers on Facebook. It shouldn’t be difficult for Disney to repeat the success of Marvel and Pixar with Lucasfilm. Disney has also stated that it is planning a significant Star Wars presence in its theme parks. While Disney has paid billions of dollars for these acquisitions, we think that the price paid is justified as it has been able to generate massive revenues and profits from them. For instance, Marvel’s 10 films (after Disney’s acquisition in 2009) have grossed over $7 billion at the box-office. This is just the movies business; Disney also earns revenues through the characters and franchises across its portfolio, including television, theme parks, movies and retail merchandise. Disney’s Franchises Have Done Well In The Past And Are Expected To Continue The Trajectory Disney currently commands close to 20% market share with around $1.27 billion grossing at the U.S. box-office for 2015. However, the grosses, including international markets, currently stands around $2.80 billion. The studio’s three movies, Avengers: Age of Ultron, Inside Out and Cinderella, accounted for 90% of the overall grossing in 2015. Disney had a fantastic run at the box office so far this year and it has a solid lineup for the coming months, as well as in the next few years, when the studio will reap the benefits from sequels to Star Wars, Avengers, Captain America, Toy Story, Frozen and Thor. Given the popularity of these franchises and associated characters, we estimate the box-office revenues will grow and be around $3 billion, and an estimated EBITDA margin of 29% for Disney’s studio business will translate into EBITDA of $860 million, representing around 3% of the company’s overall EBITDA by the end of our forecast period. However, a better than expected performance of Star Wars at the box-office could lead to higher revenue growth in the coming years and translate into a 5% upside to our price estimate for Disney. Here, we estimate the segment revenues to be north of $4 billion by 2021. Profit growth will not only come from higher revenues but also from higher EBITDA margins. It must be noted that the Star Wars contribution will be much higher if we account for Disney’s other products and services. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

Vale (NYSE:VALE) released its second quarter earnings results and conducted a conference call with analysts on Thursday, July 30. As expected, the sharp decline in iron ore prices over the course of the last year negatively impacted the company’s results. However, a boost in quarterly iron ore shipments driven by record Q2 production levels, in addition to the company’s cost reduction efforts, partially offset the impact of a fall in prices on the company’s margins. Despite a sharp 40% year-over-year decline in realized prices for Vale’s shipments of iron ore fines, the decline in the company’s adjusted EBITDA margin was far more gradual. Vale’s adjusted EBITDA margin stood at 31.8% in Q2 2015, as compared to 41.5% in the corresponding period of 2014. The company’s net operating revenues for Q2 2015 stood at $6.97 billion, sharply lower as compared to the figure of $9.90 billion reported in the corresponding period of 2014, primarily due to the decline in iron ore prices. In this article, we will take a closer look at Vale’s Q2 earnings results. Iron Ore Prices The average realized price for Vale’s iron ore fines stood at $50.62 per ton in Q2 2015, nearly 40% lower than the average realized price for Q2 2014, which stood at $84.60 per ton. The sale of iron ore fines and pellets collectively accounted for around 63% of Vale’s net operating revenues in Q2 2015. Thus, the decline in iron ore prices was primarily responsible for Vale’s poor quarterly results. Iron ore is an important raw material for the steel industry. Thus, demand for iron ore by the steel industry plays a major role in determining its prices. Benchmark international iron ore prices are largely determined by Chinese demand, since China is the largest consumer of iron ore in the world. It accounts for more than 60% of the seaborne iron ore trade. Chinese steel demand growth is expected to decline by 0.5% in 2015, following on from a similar decline in 2014. Weak demand for steel has indirectly resulted in weak demand for iron ore. On the supply side, an expansion in production by major iron ore mining companies such as Vale, Rio Tinto, and BHP Billiton has created an oversupply situation. The worldwide surplus of seaborne iron ore supply is expected to rise to 300 million tons in 2017, from an expected surplus of 175 million tons in 2015, and a surplus of 72 million tons and 14 million tons in 2014 and 2013, respectively. A combination of weak demand and oversupply is likely to result in weak iron ore prices in the near term. The following chart illustrates the trajectory of iron ore prices over the last twelve months. Costs In response to the weak iron ore pricing environment, Vale has adopted a strategy of cost reduction and disciplined capital allocation. In Q2 2015, the company’s costs and expenses declined by 14% to $5.9 billion, as compared to figures for the corresponding period of last year. Vale has actively sought to reduce expenses such as SG&A and R&D, both of which declined by more than 25% year-over-year. In addition, the company’s margins were boosted by the sharp increase in iron ore production volumes and the company’s cost reduction initiatives. The company’s cost reduction initiatives were augmented by the depreciation of the Brazilian Real versus the U.S. Dollar, which reduced costs in Dollar terms. Iron ore production in Q2 2015 rose to 85.3 million tons, which was 7.4% higher than in the corresponding period of 2014. The increase in iron ore production was primarily due to the ramp-up of production at the Itabira and Minas Centrais mines, where production rose 11.4% and 18.5%, respectively, year-over-year. The increase in iron ore output is consistent with Vale’s long-term plans to boost volumes, capitalizing on its low-cost iron ore deposits. As a result of the company’s efforts to reduce production costs, as well as economies of scale arising from the sharp increase in iron ore production volumes, unit cash costs have declined over the course of 2015 from $18.30 per ton in Q1, to $15.80 per ton in Q2. The reduction in costs realized by Vale helped offset some of the negative impact of the sharp fall in iron ore prices on the company’s results in Q2. Given the prevailing weakness in iron ore prices, Vale’s cost reduction efforts will stand the company in good stead over the course of 2015 and beyond. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

EOG Resources (NYSE:EOG) is scheduled to announce its 2015 second-quarter earnings after markets close on August 6. We expect lower crude oil prices to weigh significantly on the company’s financial results. Benchmark crude oil prices have fallen sharply over the past 12 months on rising supplies amid slower demand growth. The average Brent crude oil spot price declined by more than $48 per barrel, or almost 44% year-on-year, during the second quarter. This is expected to result in thinner operating margins on EOG Resources’ spot crude oil sales. However, higher production, primarily driven by the development of the Eagle Ford shale and other onshore assets in the U.S., coupled with a better volume-mix, is expected to partially offset the impact of lower oil prices on the company’s overall performance. During the earnings conference call, we will be looking for an update on EOG Resources’ ongoing development program in the Eagle Ford shale and the impact of the changed crude oil price environment on its capital spending and production growth outlook. EOG Resources is an independent oil and gas exploration and production company that explores, develops, produces, and markets crude oil, natural gas liquids, and dry natural gas from major producing basins in the U.S., Trinidad, Canada, and the U.K. A vast majority (around 94%) of the company’s total net proved reserves are located in the U.S., while the remaining ones are spread across other international markets including Trinidad, U.K., Canada, Argentina, and China. We currently have a $96/share price estimate for EOG Resources, which is around 25% above its current market price. See Our Complete Analysis For EOG Resources Eagle Ford Development In Focus EOG Resources’ net crude oil production has grown sharply from just around 55 thousand barrels per day (MBD) in 2009 to almost 289 MBD last year, implying a CAGR of more than 39%. Almost all of this growth in the company’s crude oil production has come from its operations in the Eagle Ford and Bakken shale plays in the U.S. EOG Resources derives more than 97.5% of its total crude oil production from the U.S., where the recent growth in tight oil production has been phenomenal, to say the least. From almost nothing in 2005, the country’s crude oil production from horizontal drilling of relatively impervious rocks has grown to more than 4 million barrels per day currently. A large proportion of this growth (almost 40%) has come from increased horizontal drilling in the Eagle Ford shale formation, where EOG Resources holds a very lucrative acreage position. EOG Resources derives more than 61% of its total crude oil production from the Eagle Ford shale, the rock formation in South Texas that runs from the U.S.-Mexico border north of Laredo, in a narrow band extending northeast for several hundred miles to just north of Houston. By the latest EIA estimates, it is the second largest tight oil play in the U.S., and is estimated to hold proved crude oil reserves of almost 4.2 billion barrels, which makes up almost 41.6% of the total tight oil reserves in the U.S. EOG Resources continues to be the biggest oil producer and acreage holder in the Eagle Ford shale. The company holds 624,000 net acres in the play, a majority of which, around 561,000 net acres, fall in the crude oil window of the formation. Therefore, EOG Resources’ activity level in the Eagle Ford shale is a good indication of the broader outlook for the play, and to a certain extent, the overall tight oil production in the U.S. We will therefore be looking closely for the impact of the changed crude oil price environment on EOG Resources’ development program, and its production growth outlook in the Eagle Ford shale. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

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